■ Both Conservative and Labour plans have their drawbacks
■ Potential for insurance solution hamstrung by public mistrust
The long-term care funding options suggested by both the government and the opposition have been widely discredited by specialist financial advisers and other commentators who are calling for politicians to be frank with the public about the true cost of care.
Prime Minister Gordon Brown’s announcement at the recent Labour party conference that the elderly with “the highest needs” will receive free personal care in their own homes was unexpected, given the fact that there was no mention of it in government’s green paper on care.
“It does seem slightly odd to produce this rabbit from a hat just as the debate is getting under way,” said Niall Dickson, chief executive of charity the King’s Fund.
“Assuming the extra funds from central government won’t be ring-fenced, there is a danger that local authorities will have a perverse incentive to encourage people into residential care, where many older people will still have to pay out of their own pockets.”
Philip Spiers, managing director of NHFA Care Fees Advice, said: “I don’t understand where they get their figures from quite honestly. If you look at the actual cost of care for somebody with critical needs you are talking about substantially much more money than that. Councils are currently charging up to £18 an hour.”
THE CONSERVATIVE PROPOSAL
After making short shrift of the government’s proposal, the Conservatives quickly found themselves on the receiving end of tough questions about the feasibility of their Home Protection scheme. The £8,000 “one off” fee proposed is substantially less than the £20,000-£25,000 envisaged in the government’s green paper and they were forced to admit during their conference that top-up payments might be required.
“It doesn’t sound to me like enough money,” said Alex Edmans, a care funding adviser at Saga. “Insurance companies would need to have quite strict rules over when people could claim. They are going to want some kind of financial support or guarantee from the government.”
Advisers were united in their concern about the implications of such a scheme operating on a voluntary basis. The scheme would operate in the shadow of pre-funded insurance products, the vast majority of which were withdrawn from the market due to low levels of uptake.
“When we did have long-term care insurance they [insurers] were clever in putting in a clause that said they could up premiums, so that you had to pay or reduce your cover,” warned Spiers. “Getting the pricing right is essential so you don’t have to have unknown reviews. They would need to make sure eligibility and claims criteria were firmly in place.”
Chris Horlick, managing director of care at long-term care provider Partnership, said the firm would “certainly like to be involved” in the Conservatives’ scheme, but highlighted a number of problems including the risks of making calculations based on average fees.
“I take the view that the scandal is not so much that people are forced to sell their homes but that, having sold their home and got together all their assets, they should however run out of money,” he said. Horlick gave the example of a couple who had exhausted £650,000 in paying for care, almost eight times the average cost of an immediate needs annuity.
“The best thing a government can do is to make it clear that people are going to have to pay something for their own care,” he said, observing that following the Labour announcement one customer had requested to cancel a purchase having heard that “the government was going to fund all care for everyone”.
Running in the background of the political debate is the consultation on the government’s green paper. At an ABI seminar held in October, Alexandra Norrish of the Department of Health said the compulsory system was emerging as the favoured option, fuelled by concerns that a voluntary system would lead to “freeloading”.
“There is a huge distrust of financial institutions,” she added. “People have said ‘why should I trust an insurance company?’ They are worried they might pay their contributions then be told it was not adequate and they have to pay more.”
Jules Constantinou, head of marketing at reinsurer Gen Re LifeHealth UK, suggested that the right approach would be for the government to set a fixed benefit, clearly communicated to the public, who could then make a decision about whether or not to purchase an additional product from the insurance industry.
The advisers who spoke to Health Insurance had a range of views on what they would like to see from the industry.
Spiers pointed out that a national insurance model would put a disproportionate burden on the working population, which is shrinking in proportion to the retired population. He suggested that two funding pots could be created, one for the older generation funded by their assets and another for those under 30 based on a levy on earnings.
Edmans suggested that a savings plan that could be transferred into an annuity might be a good solution.
There was widespread agreement at the ABI that the industry would need to work closely with the government to devise a single assessment method to judge people’s needs for care and funding. Views on the extent to which the industry would first need to secure consumers’ trust, however, were varied.
Professor Michael O’Donnell, chief medical officer at Unum, suggested that a claim for residential care funding might be one people were reluctant to make until absolutely necessary.
“Maybe the issue is that insurers need to trust their customers more rather than the other way around,” he said.